Saturday, August 13, 2016

Why Monetary Stimulation is Ineffective

The Central Banks lower interest rates in the hope that it will stimulate the economy; that companies will borrow to expand, buy goods and services and hire more workers. But companies have not!

They have completed stock buybacks or done Mergers and Acquisitions (M&A). I might add that M&A usually results in layoffs and cost cutting, which shrinks the economy. There is little Capital Expenditure (CapEx) and hiring owing to the Affordable Care Act (ObamaCare) and the plethora of Federal, State and local regulations heaped upon businesses in the name of "protecting the consumer" (which is in reality "justifying the bureaucracy"). This means that businesses cannot afford to hire full time employees (and why many full time employees have been cut back to 28 hours a week and shifted to part time to avoid the onerous health care coverage mandate). Thus, all the monetary easing in the world isn't doing what it would usually do.

Metaphor: if monetary stimulus is "filling the monetary punch bowl" in the hope that the economic participants would partake, ObamaCare and excessive regulations are the floating turds spoiling the party. The pundits and academics, astoundingly, ignore this and continue to call for more punch!

In Europe, the analysts, central bankers and government leadership ignore the effect of the millions of Jihadists flooding in at the invitation of the Globalists. Even with the infrastructure and the population being attacked and destroyed on a daily basis, they still can't understand why businesses aren't responding to the monetary easing!!!

The Globalists are exporting American jobs and production capabilities. Massive factories going up in Monterrey Mexico, R&D facilities moved India: yet the Fed can't understand why "hiring has not returned to pre-recession levels".

Opening the monetary spigot isn't going to remedy the structural dismantling of the nation. Nor will the efficiency of Globalism continue to glean support when the beneficiaries narrow to a thin crust of elite multinational corporations and their owners and the government bureaucrats they buy off. I heard an OSCE Official talking about NAFTA: he said "we can take Canadian raw materials, American capital and Mexican labor and build an economic powerhouse." But who benefits? Not the Mexican workers enslaved by the Patron labor contractors, not the millions of Americans laid off as factories move to Mexico. Maybe a few Canadian commodities employees and shareholders, and of course Wall Street . And that's it!

The Progressive solution is to raise the minimum wage and mandate employer provided health care, which only accelerates the job losses. Progressives seem immune to the concept of price elasticity of labor.

The answer is to stop relying on Government to revive the economy. Eight years of Obama left wing central planning has failed. Time to unleash the private sector. We could start by lowering taxes and allow the trillions being held offshore. That's trillions of "stimulus", far better than the Keynesian "infrastructure projects" like Obama's Solyndra.